Tax breaks to farmers to offset the cost of getting certified as organic

On a farm tucked under a lush Waimanalo mountainside, Sean Anderson tends passion fruit, kale and salad greens — using only what nature provides.

He creates his own compost and fertilizers and doesn’t use chemicals. But he’s not certified as an organic farmer because the cost is too high.

“The margins on farming are so slim as it is that any additional cost really can make or break the success of your business,” said Anderson, founder and farm manager of Green Rows Farm.

That could change after Hawaii became the first state to pass legislation providing tax breaks to farmers to offset the cost of getting certified as organic by the U.S. Department of Agriculture. Gov. David Ige has not yet decided whether he will sign it into law, a spokeswoman said.

“Hawaii is pretty well-known in agriculture policy as being in the forefront or looking at things differently,” said Doug Farquhar, director of agriculture for the National Conference of State Legislatures.

The organic foods industry in the U.S. has grown to make up about 5 percent of the total food market, reaching $39.1 billion in sales in 2014, according to the Organic Trade Association.

Farmers have long been offered subsidies for crops like corn and soybeans, but the organic industry has not been widely targeted.

A federal program offers organic farmers help covering up to 75 percent of certification costs, for maximum of $750. A bill in the Minnesota Legislature would provide grants of up to $750 to farmers in financial need for organic certification costs. It will be part of negotiations as lawmakers weigh how to spend a budget surplus.

In Hawaii, the legislation would give farmers up to $50,000 in tax credits for qualifying expenses, which include application fees, inspection costs and equipment or supplies needed to produce organic products. The state would be able to give $2 million in tax breaks per year.

The cost of getting certified varies widely, ranging from a few hundred to several thousand dollars, according to the USDA. Anderson estimates it would cost him $1,000 to $1,500 per year to get and maintain certification for his 3-acre farm, he said.

“If I were certified organic, I could reach a much larger audience,” Anderson said.

Rep. Chris Lee said he introduced the bill hoping to encourage a younger generation of farmers in Hawaii, where many are approaching retirement age.

“We still import 80 to 85 percent of the food that we eat,” Lee said. “We have enormous potential for interruptions in our food supply, should there be a natural disaster or any issue that arises.”

The bill got support from the Hawaii Center for Food Safety, which has lobbied against genetically modified crops and pushed for stricter pesticide regulations on the islands.

“It is the emerging market in the U.S. for agriculture, and Hawaii has the opportunity to create a niche in that,” said Ashley Lukens, the group’s program director. “I think people are willing to pay a premium to know that their food is grown safely … but they need that label.”

Tom Yamachika, president of the Tax Foundation of Hawaii, said the proposed tax break is unusual because it would completely cover the cost of organic certification.

“Usually you want the business to have some skin in the game so they have an incentive to look for the most efficient or effective ways of accomplishing what they need to,” Yamachika said. “Because if you’re not paying for stuff, there really is no reason for you to shop to get the best price.”

Hawaii may have pulled ahead in subsidies for organic farming in part because it has fewer industries competing for tax credits compared with other states, said Farquhar, of the state legislature’s organization.

“They don’t have a major tech industry, they don’t have an oil industry … it’s tourism and fishing and agriculture, whereas in California, you have so many different interests,” Farquhar said.